Car Finance Scandal Could Eclipse PPI, Warns City Regulator.

A lawyer from the FCA acknowledges that the extent of compensation may be greater than initially anticipated, potentially reaching levels comparable to PPI, which resulted in a £50 billion expense for banks.

Britain's car finance scandal has the potential to rival the payment protection insurance (PPI) mis-selling crisis, which resulted in a £50 billion loss for UK banks, as acknowledged by the chief legal officer of the City regulator.

Stephen Braviner Roman, the general counsel and executive director responsible for legal affairs at the Financial Conduct Authority (FCA), stated that the recent court of appeal ruling in October regarding car finance commission structures significantly broadened the possibilities for consumer compensation.

This pivotal ruling established that the practice of paying a "secret" commission to car dealers who facilitated loans, without revealing the amount and terms of that commission to borrowers, was illegal.

The decision extended beyond the FCA's investigation into a particular type of commission payment, referred to as discretionary commission arrangements (DCAs), which the regulator prohibited in 2021.

“We’ve previously said that looking at DCAs alone, we do not think it’s the scale of PPI,” Braviner Roman told MPs during a Treasury committee hearing on Tuesday. “But that was when we were looking at DCAs alone. So I think it would be premature to say it’s definitely not the scale of PPI now.”

The implications indicate that the expenses incurred by lenders, such as Lloyds, Santander UK, and Close Brothers, may exceed Moody’s projected figure of £30 billion.

Earlier this year, the chief executive of the regulator, Nikhil Rathi, downplayed the comparison, stating that he did “not anticipate this issue playing out as PPI did”. He had been making efforts to alleviate worries following remarks from Martin Lewis, the founder of MoneySavingExpert.com, who indicated that this situation could result in the largest compensation payout since the PPI scandal.

However, the ruling from the Court of Appeal has significantly expanded the scope of what was previously a limited investigation. The lenders implicated in the motor finance case, namely Close Brothers and FirstRand, the owner of MotoNovo, are currently seeking to challenge the ruling at the Supreme Court.

PPI represented the most expensive and protracted consumer scandal in Britain’s history. Approximately 64 million policies were sold in the UK, primarily between 1990 and 2010, with some dating back to the 1970s, often bundled with loans, mortgages, credit cards, and other financial products.

Regulatory authorities began imposing penalties in 2006 upon discovering that the costly insurance was frequently aggressively marketed and mis-sold by banks, which claimed that the policies would provide coverage in the event of illness or job loss. However, while these policies generated significant profits for the banks, numerous exclusions meant that many customers were unable to file claims.

The implicated lenders continued to pay fines and compensation to affected customers until 2019, resulting in a total industry cost of approximately £48.5 billion.

In the meantime, the chief executive of the FCA cautioned that the chancellor’s intentions to relax regulations and promote increased risk-taking in the financial sector would inevitably attract unscrupulous individuals.

“We can’t stop everything. If we’re going to allow more risk into the system … it sometimes does attract people who don’t have the best of intentions,” Rathi said.

Rathi was discussing the contents of the chancellor's remit letter, which indicated that initiatives aimed at consumer protection should not hinder "sensible risk-taking" within the financial sector. Rachel Reeves also called on the FCA to enhance its support for the growth and competitiveness of firms in the City.

The remit letter was dispatched shortly after Reeves spoke to bankers at the annual Mansion House dinner, where she asserted that the regulations established to safeguard the economy following the 2007-08 global financial crisis had "overreached."

Her statements have sparked controversy, particularly as Labour's lenient regulations were implicated in the downfall of the Royal Bank of Scotland in 2008. The failure of RBS intensified the global financial crisis, compelling the government to allocate tens of billions of pounds to rescue several banks, which subsequently resulted in years of recession and austerity throughout the UK.

The growing car finance scandal, with potential compensation claims rivaling the PPI crisis, highlights serious concerns about the financial industry’s integrity. As the scope of wrongdoing expands, many consumers may face significant financial losses, exacerbating the already strained relationship between banks and the public.

While some companies push back, challenging rulings and dragging out the process, the damage to consumer trust is undeniable. If the scandal results in the massive payouts predicted, it could cause even greater financial instability, leaving taxpayers and consumers to foot the bill once again, as banks continue to evade true accountability.

LATEST: ONS Warns Average Home in England Now Unaffordable.

FCA Reviews Landmark Car Finance Ruling, Potentially Unlocking Millions in Consumer Compensation

The Financial Conduct Authority (FCA) is re-evaluating the car finance industry following a powerful Court of Appeal ruling that sides with consumers, shaking the foundation of commission-based car finance sales. The recent judgment declares it unlawful for car finance dealers to receive commission payments from lenders without first obtaining informed consent from the customer, a decision that could pave the way for widespread consumer compensation claims.

The FCA has been investigating discretionary commission arrangements in car finance, where dealers and brokers could raise interest rates on loans to increase their commission earnings. These practices, which allowed customers to be overcharged unknowingly, were banned in 2021. However, the Court of Appeal ruling extends beyond discretionary commissions, sparking concerns that many more consumers may have been misled about the fees they paid.

An Expanding FCA Investigation

The regulator is “carefully considering” the implications of this ruling, which could increase the scale of compensation owed to customers. The FCA is now consulting on whether to extend the time frame that motor finance firms have to handle complaints related to potentially unlawful commissions.

Alex Neill, co-founder of Consumer Voice, highlights the significance of this development, saying, “The financial regulator has signalled it will allow motor finance providers more time to consider how to deal with complaints about all secret commissions, not just those that are discretionary. This is big news for consumers as it could mean significantly more money is owed to more people.”

Neill further urged consumers to question any commissions applied to their loans: “Anyone who has been told by their finance provider that they didn’t have discretionary commission on their loan should now be asking if any commission was applied at all. If it was, they may be owed compensation.”

Consumers Encouraged to Take Action

As the FCA reviews its position and considers extending complaint deadlines, impacted consumers are encouraged to act. Consumer rights groups have made template letters available to help individuals request clarity from their finance providers and submit claims if necessary. This decision marks a turning point for thousands of car finance customers who may have unknowingly overpaid, potentially unlocking millions in compensation.

Stay informed and access our updated resources to assist in raising a complaint with your car finance provider if you believe undisclosed commissions may have affected your loan.

In a recent high-profile case, the UK Financial Conduct Authority (FCA) has charged nine individuals, commonly dubbed as "finfluencers," with promoting an unauthorised foreign exchange trading scheme through social media platforms. The defendants, including famous names like Emmanuel Nwanze and Holly Thompson, both former Love Island contestants, are accused of running an Instagram account that issued unauthorised financial promotions.

They then paid other influencers such as Rebecca Gormley, Jamie Clayton, and Biggs Chris; who are also former Love Island contestants to use their own Instagram accounts to promote their trading platform. But, the trouble has spread far away from the Love Island. The Only Way is Essex stars Lauren Goodger and Yazmin Oukhellou; plus Geordie Shore celebrity Scott Timlin also are alleged to have promoted the scheme.

The FCA's charges include allegations of running an unauthorised investment scheme and conducting unauthorised financial promotions. This unauthorised promotion has brought significant attention to the legal ramifications of marketing high-risk financial products to consumers who lack a full understanding of the nature of the asset class and the risks involved.

An initial hearing took place in July 2024, however, the case will not be heard until 2027. This case exemplifies the regulatory body's ongoing efforts to get to grips with new challenges and poor compliance standards in the sphere of social media influence.

Regulation of Financial Promotions

The legislation here is set out in the Financial Services and Markets Act 2000, which outlines the remit of financial regulators in the UK (including the Financial Conduct Authority). The act requires regulators to protect consumers in a manner which cognises differing degrees of risk involved in financial activities against consumers' differing degrees of experience, expertise and financial literacy. In this analysis, the FCA may have found the promotion to be objectionable, however, this is not the principal basis for bringing legal action.

Legislation also requires those who engage in the promotion of financial services to be authorised to do so.

There is a distinction/exclusion that covers the discussion of financial topics in newspapers, magazines, and similar publications. This requires the primary function of the publication to be informative rather than specifically encouraging or enabling individuals to buy or sell particular assets, or borrow money. In short, producing content to promote financial products without permission is illegal. However, where do explicit adverts stand in terms of the regulation?

Advertisements are subject to restrictions too. Advertisements or other promotional material require the input and approval of an approved person (a part 4A approval as per the Financial Services and Markets Act 2000). An approved person (individual or corporate body) who has Financial Conduct Authority permission may engage in or approve financial promotion. However, it is an offence to undertake financial promotion when not approved and authorised to do so.

The FCA argues that by promoting Contracts for Difference via Instagram, there has been a breach of the regulation preventing unauthorised persons from carrying out regulated activities in the UK.

What where they promoting?: Understanding CFDs

Contracts for Difference (CFDs) are financial derivatives that allow traders to speculate on the price movements of various assets, such as stocks, commodities, currencies, and indices, without actually owning the underlying assets.

When trading CFDs, investors agree to exchange the difference in the asset's price from when the contract is opened to when it is closed. This type of trading is often on margin (leveraged), meaning traders can control a larger position with a smaller initial investment, which can amplify both potential profits and losses. CFDs provide flexibility in accessing global markets but come with significant risks due to market volatility and leverage.

CFDs are complex and high-risk instruments. Promoting them to a broad audience, particularly through platforms like Instagram, can mislead inexperienced investors who may not fully understand the risks involved.

Conclusion

The recent charges against these finfluencers for unauthorised promotion of financial products on social media highlights the dangers of relying on influencers for financial advice as there is little guarantee that information is fair, clear, and not misleading. Basic warnings of the risks involved are often found to be lacking. This case underscores the importance of consumer protection in financial markets, particularly on platforms where content often blends personal opinion with promotional material.

Contracts for Difference (CFDs), in particular, are complex and risky financial instruments that are not suitable for all investors, especially those who are inexperienced or not confident with derivative instruments. Social media users should exercise caution and conduct thorough independent research before investing based on online endorsements.

Dr Michael Harrison – Senior Lecturer in Economics & Finance – University of East London

Kaarmann was recently fined £365,651 by Her Majesty’s Revenue and Customs for defaulting on a tax bill in 2018. At the time, a spokesperson for Wise said Kaarmann had submitted his personal tax returns for the 2017/18 tax year late but had since paid what he owed as well as the relevant penalties for missing the deadline. 

According to a statement from the fintech company, the UK’s Financial Conduct Authority (FCA) has now launched an investigation into the matter, with regulators looking into whether Wise’s CEO failed to meet regulatory obligations and standards. 

In the statement, Chair David Wells said, “The Board takes Kristo's tax default and the FCA's investigation very seriously. After reviewing the matter late last year the Board required that Kristo take remedial actions, including appointing professional tax advisors to ensure his personal tax matters are appropriately managed. The Board has also shared details of its own findings, assessment and actions with the FCA and will cooperate fully with the FCA as and when they require, while continuing to support Kristo in his role as CEO."

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The Financial Conduct Authority (FCA) reported a tripling of lending to customers in 2020 alone. It is surely one of the notable positives out of restricted movements during the pandemic. But it is not just about ubiquity and lending growth. It is also the poster child for innovation in retail finance. BNPL shows us all what is possible when technology, e-commerce and consumer needs are matched well. What’s not to love?

An unregulated landscape

BNPL sits in a class of agreements between parties that is quite vast such as invoicing and gym memberships. As such it is largely unregulated and has been deliberately exempt from consumer credit laws and regulations. The decision to exempt it, some fifty years ago, was sensible at the time as the majority of these types of arrangements posed little risk. But unlike most of those traditional arrangements, BNPL is plain and simple, lending. It may appear to only separate the timing of purchasing goods or services from repayment, but it is a contractual agreement to make repayments, and it can lead to interest, and fees being charged. 

BNPL has the potential to overcommit the customer and cause harm if not conducted well. Therefore, being unregulated seems a little at odds with what most people might expect today, against a backdrop of increased consumer protections that focus on reducing detriment and harm from lending. Looking at how BNPL has evolved over these last few years, it feels that regulation and coverage by law are necessary and timely. 

Change is afoot

The industry is bracing itself, even pre-empting what might happen with BNPL, in order to get in front of it. The FCA led a detailed review of practices in unsecured credit – The Woolard Review. This review identified BNPL as being different from other forms of arrangements, exempt from consumer credit laws and regulated activity, and as presenting a high risk of consumer detriment.  Key areas of concern are around how it is used, promoted, understood, and whether good practices are in place to manage the risks and harm to customers. The FCA recommended it be brought within its perimeter of conduct rules, and the Treasury is consulting on making statutory changes that will remove current exemptions. 

In a sign of what is to come, the FCA has taken a pre-emptive strike on the main providers. Showing an intent to exercise its full powers, it recently issued publicly the findings of a review of the four largest providers of BNPL loans covering compliance with consumer contract regulations and consumer rights. It raised concerns in respect of contractual terms that were considered unlikely to comply with the rules. According to the FCA, the four providers involved have been ‘fully cooperative’ and ‘agreed’ to changes, including for some, a voluntary refund of inappropriately charged fees. 

Providers are pretty savvy though and it seems clear where this will likely end up – not too dissimilar from other forms of lending. Many providers are revising terms, providing new options for payment at the point of sale and creating more prominent messaging and options. Their internal practices are also sharpening up. Providers are strengthening their credit risk controls – adopting good practices in line with more traditional lending products (and providers) in assessing customer indebtedness and ability to afford repayments, as well as better overall management of their credit risks. 

However, it is important to note the requirements are not certain. The questions, as the Treasury put it, are – what is to be included within the scope (that is, what is no longer to be exempt) and what controls need to be in place to manage this. Their conundrum, remembering that BNPL looks and feels a lot like other types of arrangements, is: cast the statutory net too wide and they risk including arrangements that do not require such attention and may have unintentional ramifications on a wide range of practices. But, cast it too narrowly, and it is easy for providers to avoid any requirements by slightly tweaking their products and practices. 

Unregulated BNPL is becoming significant

Short-term interest-free credit used to purchase more substantial items (as labelled by the Treasury and FCA) is not what the lawmakers and regulators are concerned with – it is not what is growing rapidly or causing detriment to consumers. The focus of their attention is what they call unregulated BNPL agreements, which typically target lower value items, often non-essential and fast consumable items like clothing. This is big and growing with estimates of over £5 billion last year, and projections into the tens of billions by some analysts.

There is potential for BNPL to be much, much bigger

If the wider market foray into BNPL continues, it will likely cannibalise existing lending, particularly of credit cards, but it may also increase spending levels overall. Should BNPL purchases shift upward in value, this will see total exposures grow quickly. Individual online retail shopping amounts for BNPL are relatively low. But aggregating spending over multiple purchases for a customer mounts up. If purchases shift to more substantive goods – the territory of short-term interest-free items mentioned previously - it will account for a sizeable chunk of the quarter trillion-pound unsecured market. Having the largest BNPL providers sit outside the regulatory perimeter, or inconsistent practices between lenders, undermines the whole unsecured market. 

The outlook for BNPL providers

Analysis by Redburn, as reported in the FT, suggests BNPL providers that only offer this product are unlikely to be sustainable in the long run. Whilst they look attractive today, they will soon be outgunned by incumbent lenders. However, those able to deepen their offerings and relationships with a broader suite of products and services will see sustainable value, leveraging BNPL as an effective acquisition generator for new business. 

This reinforces a further point, that the type of customer who is attracted to and uses BNPL now is younger and without a credit history. Yes, BNPL may be  positive for greater financial inclusion, but it also points to a possible vulnerable customer group who are less aware, less financially astute, less resilient, and so more susceptible to harmful practices.  

Providers should therefore aim to build on that foundation with a very clear long-term perspective. A view that covers decades not just the next few years, this is how BNPL can become the backbone of how people spend on low to moderate purchases when requiring credit. 

About the author: Phillip Dransfield is Partner at 4most, a UK based, credit and life insurance risk consultancy and is recognised internationally as one of the most dynamic and successful risk consulting firms.  

Gemini’s survey of 2,300 people in the UK found 18% had some type of cryptocurrency investment, with nearly half  (45%) investing for the first time last year.

The research suggests a significant jump in crypto ownership across the past 12 months, with research from the Financial Conduct Authority (FCA) estimating that just 3.9% to 4.4% of Brits had invested in the asset last year. This jump coincides with a rally for the market, with Bitcoin reaching an all-time high of over $68,000 in November 2021.

In a comment, Gemini’s UK boss Blair Halliday said, “2021 was transformational for UK cryptocurrency ownership. Confidence in and awareness of crypto has increased dramatically.”

“We believe education is the key to enabling wider audiences to safely access and capitalise on the immense opportunities that crypto represents.”

An investigation into the nature of Staley’s relationship with Epstein, who died in prison, is still underway. Nonetheless, Staley is set to receive £2.4 million in pay, as well as a £120,000 pension allowance, for 2021. 

In a statement, the bank said: "In line with its normal procedures, the committee exercised its discretion to suspend the vesting of all of Mr Staley's unvested awards, pending further developments in respect of the regulatory and legal proceedings related to the ongoing Financial Conduct Authority and Prudential Regulatory Authority investigation regarding Mr Staley."

According to the report, Staley was paid approximately £25 million in his near-7-years at Barclays. He holds 18 million shares in the bank, including £3.3 million worth granted by Barclays as an “unvested” award for 2021-2023.  

Under Staley’s strategy for boosting the bank, Barclays profits rocketed to £8.4 billion. 

The FCA is seeking to reinforce its ability to prevent poor conduct following its botched handling of collapsed invent fund London Capital & Finance and a recent surge in online scams. 

The FCA has proposed that, from April 2023, firms must comply with a new consumer duty principle under which they must act to deliver good outcomes and value to customers. 

“We want to see a higher level of consumer protection in retail financial markets, where firms compete vigorously in the interests of consumers. We also want to drive a healthy and successful financial services system in which firms can thrive and consumers can make informed choices about financial products and services,” the FCA said in a public consultation paper.

Currently, firms are required to treat their customers fairly and not mislead them. However, the FCA wants to take this a step further by pushing firms to show evidence of good outcomes, instead of just complying with product governance rules. 

The FCA has acknowledged the new duty of care will only be successful if properly enforced and has already announced an internal makeover which will allow for quicker intervention. 

In the past weeks, Binance has come under pressure from regulators across the world due to concerns over the use of crypto in money laundering and the risks it poses to consumers. In June, the FCA banned Binance from conducting any regulated activity within the UK and placed numerous requirements on the platform. 

In a document dated June 25, the FCA explains: "Based upon the Firm’s engagement to date, the FCA considers that the Firm is not capable of being effectively supervised. This is of particular concern in the context of the Firm’s membership of a global Group which offers complex and high-risk financial products, which pose a significant risk to consumers.”

A spokesman for Binance said that the crypto exchange platform has fully complied with all the FCA’s requirements and that it will continue to engage with the watchdog to resolve any outstanding issues. In Wednesday’s document, the FCA confirmed that Binance’s UK arm was not currently carrying out any regulated activity within the country and had not done so for over 12 months.

However, the FCA also said that it sent two requests for information about Binance’s wider global business model and its stock tokens. In the document, the UK watchdog said: "The FCA considers that the firm's responses to some questions amounted to a refusal to supply information.”

The move comes as part of a larger wave of opposition to the trading platform, as peers Santander and Barclays also block payments to Binance. Back in June, the Financial Conduct Authority (FCA) issued a warning against Binance, banning the trading platform from conducting any regulated activity in the UK, and advising consumers to be wary of advertisements that promised a high return on crypto assets investments. The FCA ordered Binance to remove all forms of advertising and promotions by 30 June.

NatWest has said it has seen high levels of cryptocurrency investment scams targeting customers across retail and business banking, a trend particularly prevalent across social media platforms. To protect its customers, the UK bank said that it was temporarily reducing the maximum daily amount that a customer can transfer to cryptocurrency exchanges. NatWest is also blocking payments to a number of cryptocurrency asset firms, where the bank notes some customers have already suffered fraud-related harm. However, despite the changes, NatWest has stated that customers will still be able to accept cryptocurrencies as a form of payment if they wish to do so. 

On Monday, numerous reports were circulating Twitter that claimed Binance had emailed customers regarding a suspension for maintenance on GBP withdrawals. The social media reports were confirmed by a statement on Clear Junction’s website. The statement cited a ruling by the Financial Conduct Authority (FCA) on the exchange. 

In June, the FCA ruled that Binance could no longer conduct any regulated activity within the United Kingdom and issued a consumer warning against the cryptocurrency platform. The FCA warned people to be wary of advertisements that promised high returns on crypto asset investments, and Binance was ordered to remove all advertisements and financial promotions by the end of the month. Binance was required to clearly state on its website and social media platforms that it was no longer permitted to operate in the UK. However, before Binance suspended GBP withdrawals, the platform’s users still had the option to buy cryptocurrencies and tokens in British pounds.

On Thursday, Lloyds Bank General Insurance (LBGI) received a fine of £90.6 million from the Financial Conduct Authority (FCA) for failing to clearly communicate with customers in letters sent between January 2009 and November 2007.

Between these dates, Lloyds and subsidiary Halifax sent out nearly 9 million renewal letters to home insurance customers. The letters implied customers were receiving a competitive price. However, LBGI did not check or provide evidence of the accuracy of the claims. In approximately 87% of cases, customers chose to renew their policies with the bank. In 2009, LBGI rewrote the letters and omitted problematic phrasing. However, the FCA has said the issue persisted beyond this year. There were issues identified with approximately 1.5 million letters and 1.2 million policy renewals. 

Customers may have received a quotation for a higher premium when renewing home insurance compared to previous policies, the FCA said. They also said that it is likely that the renewal premiums offered to customers were higher than the premium quoted to new customers or to customers who had decided to change to a different provider. 

Approximately half a million customers were also informed that they would receive a discount based on their loyalty to the bank. However, discounts were not applied and this issue was only identified and corrected by LBGI due to the FCA’s investigation.

Lloyds has apologised and said it has already returned money to some customers who were affected by its misleading insurance renewal letters.